Europe Jan caprolactam contracts up €120/tonne on feedstock costs

01 February 2012 23:59[Source: ICIS news]

LONDON (ICIS)--European January caprolactam contracts have increased by €120/tonne ($158/tonne), following the €189-194/tonne rise in the feedstock benzene contract price, buyers and sellers said on Wednesday.

Some producers and buyers said contracts rose by as much as €150/tonne in January, but actual price levels were within the above range.

One buyer said it had settled its January contract price at an increase of €100/tonne, but this was not widely confirmed.

Producers had originally targeted at least the benzene cost increase in January contracts, but weak downstream margins could not support the full benzene pass-through.

Caprolactam producers said they would need to pass on the remainder of the January benzene cost increase in February caprolactam contracts because of weak margins.

Between October and January the benzene contract price has increased by €159-164/tonne. In the same period, caprolactam contract prices fell by €90-100/tonne. Downstream nylon 6 contract prices fell by €150/tonne at the low end from October to January, but were stable at the top-end.

An initial benzene February contract settled on Tuesday at an increase of €114-119/tonne. Producers are targeting increases in the region of €200/tonne for February caprolactam contracts, based on the initial benzene settlement.

Buyers argue that difficulties in passing costs downstream will not allow for a €200/tonne increase in the price of caprolactam in February.

Nevertheless, caprolactam demand is increasing. This is because of a variety of factors including restocking, pre-buying and firm underlying buying interest in Asia.

Restocking is the result of inventory reduction in December which has led to empty pipelines. In addition, some buyers said that suppliers are not producing at full rates, tightening the market, but this was not confirmed at source.

“In December and January there was a slowdown so we’re seeing the demand now. It’s now more difficult in terms of supply. Producers aren’t running at full capacity, but everything they’re producing they’re selling. But there’s room to increase capacity,” a buyer said.

There was pre-buying at the end of January in anticipation of rising benzene costs increasing February caprolactam prices.

Buying interest in Asia is firm because high feedstock costs in the region and a strong US dollar against the euro has made European caprolactam prices attractive. The majority of sources said that it is too soon after the Lunar New Year to gauge actual Asian demand, although it is expected to be firm.

“There is definitely Asian buying interest there, but it’s difficult to say how much as they’re still coming back from the Lunar New Year,” a caprolactam producer said.

Nevertheless, several exporters have already received enquiries from traders in Asia and said that they were offering material at $2,950-3,000/tonne CFR (cost and freight) Asia.

Producers are expecting caprolactam demand to remain high throughout the remainder of the first quarter, with DSM’s maintenance shutdown at Geleen in March expected to keep the market tight.

“Our February forecast is for it to be very strong in Europe. In Asia it will be bright in February and March. The problem is always how it will be reflected in the price,” a producer said.

DSM will halt production at its 250,000 tonne/year plant at Geleen in the Netherlands from the beginning of March until early April for maintenance. The outage is expected to last for around five weeks, a company source previously confirmed.